Oil price cut may bring Egypt's problems home to roost

By
John Yemma, Staff correspondent of The Christian Science Monitor /
February 3, 1983

Nicosia, Cyprus

Clutching portable radios and bundles of clothes, scores of Egyptian men queue up each hour in the departure lounge of Cairo airport. They are not going very far, most of them: a few hundred miles to nearby oil countries to work on projects made possible for the past decade by the windfall of petrodollars.

There are well over 2 million Egyptian workers, more unskilled than skilled, in the Arab oil world. In Iraq there are believed to be more than 1.5 million Egyptians; in Saudi Arabia 250,000; in Libya 300,000. Each year these workers send home more than $2 billion.

This is an important way Egypt is dependent on oil. There are two other, more direct ways:

1. The Suez Canal in 1982 earned $800 million as the key route for oil passing from Orient to Occident.

2. Egypt pumps from its own sands and seas 800,000 barrels of oil per day, earning the country close to $3 billion in 1982 - and Egypt has been counting on pumping more.

Though most of the world will benefit from an impending drop in oil prices, Egypt is one country that will face serious problems. Remittances from workers abroad, canal tolls, oil exports - three of the pillars of Egypt's otherwise creaky economy - are likely to begin to crumble.

Put simply: One day soon Cairo airport's arrival lounge may be more crowded with Egyptian laborers than the departure lounge. Without oil money as a cushion , Egypt's problems of overpopulation and underproduction will have come home to roost.

In addition, decreased demand for Middle Eastern oil in the West means fewer supertankers will transit the Suez Canal, income will drop, and it may be difficult to recoup recent investment expanding and modernizing the canal.

Lower world oil prices mean that, though Egyptian production is approaching 1 million b.p.d., ever-increasing output will be needed just to keep income even. Yet lower oil prices almost certainly will diminish the incentive to explore for more Egyptian oil.

Though the Egyptian government is monitoring the currently unsteady international oil market, a Western diplomat in Cairo says, ''There is no sense of panic or great concern.'' This is because Egypt sells little oil on the spot market. Most is sold (currently at $31 per barrel) on three- to six-month contracts to Israel and Europe. It, therefore, would be several months after a price collapse that Egypt would feel the fiscal drain.

But when it comes - given Egypt's structural economic problems - it will cause major difficulties.

The most troubling possibility is that ever-decreasing oil revenues in neighboring countries will mean fewer Egyptian workers queued up at the airport - or worse, Egyptians, many Egyptians, coming the other way. Some of the skilled workers, particularly those in Saudi Arabia, could help Egypt. But they most likely will be the last to return. First would come the unskilled.

Simultaneously, the possibility of employing a major portion of the projected 400,000 new workers a year who enter the Egyptian marketplace will vanish. In a recent Monitor interview, Egyptian President Hosni Mubarak pinned the hope of employing many of these new workers on their ''leaving to the Arab world, to Africa, and everywhere in the world.''

Yet for some time that has been a limited option. As far back as 1981, when the global oil surplus was just taking hold, economists were warning the Egyptian government that, as one report said, ''Egypt can count on the oil states continuing to take excess workers into the future, but they will probably do so at a steadily declining rate.''

The theme was right, but as petrodollars quickly vanish, the time factor may accelerate.

A Western economist in Cairo says the general feeling is that Egyptian workers in Saudi Arabia, Iraq, and Libya won't be the first fired. ''They probably would be thought of as 'brother Arabs,' and the Malaysians, Filipinos, etc., would be sent home first,'' the economist said.

Eventually, however, with Middle East oil revenues projected to decline for years rather than months, the Egyptian workers almost certainly will be affected.

In 1981, when Libya began to feel the effects of US-European economic strictures, 30,000 Egyptian laborers lost their jobs. At some point, economists warn, Arab oil countries may have to resort to the distressing expedient (currently seen in Nigeria) of summarily expelling aliens.

A bad economic situation could get worse.

Currently, the Egyptian economy is highly unproductive and dependent on foreign (mostly US) aid. If oil shipments and prices decline, the money that has in many ways allowed Egypt to lead a sheltered economic life will be gone.

If Egyptians come home - or simply do not go abroad as before - this would compound the tremendous population problem of the country, with its teeming 45 million living in the thin strip of the Nile Valley.

Two decades of socialism have accustomed Egyptians to low-cost food and guaranteed employment. Even if the money to finance this socialism were to vanish, economists worry that Egyptians would continue to feel that bread and jobs from the statem were their due. There were riots five years ago when food subsidies were momentarily removed.

Prime pressure groups include the huge, poorly paid bureaucracy in Cairo, the underworked ''public sector'' employees, and the subsistence-wage Egyptian Army. Avenues for rebellion could well include secret, Muslim organizations such as that which assassinated Anwar Sadat.

In this new economic climate, Egypt may have to seek more foreign aid and loans from the US and Europe. If the money is available, without radical economic reform, it might simply vanish into the giant maw of Egyptian consumption.

Though President Mubarak is credited by American and Egyptian economists with at least educating the Egyptian people on the evils of food subsidies, he and his economic aides say that weaning the country off them will not be done quickly.

Economy Minister Mustafa al-Said told the Monitor recently that ''10 years may be a reasonable period if we act consistently.'' The problem, he said, is that ''we are obliged to provide our people more than what the present stage of economic development can allow.''

In a forthcoming volume entitled ''Middle East Contemporary Survey,'' economist Eliyahu Kanovsky of Tel Aviv's Bar Ilan University summarizes Egypt's problem this way: ''So long as oil revenues, Suez Canal dues, remittances, tourism, and foreign aid were rising rapidly, the resources were available for subsidization for the higher levels of consumption (for the more fortunate). What happens when oil revenues and remittances decline, and the other sources show little or no growth, is a problem with which President Mubarak must contend.''

Next: Oil states move toward greater dependence on financial rather than mineral resources.